New technologies have already started to disrupt the financial world, subverting conventional banking as we know it.
Ever since a new league of financial technology startups emerged after the 2008 subprime crisis, “fintech” has become the watchword for the digital upheaval that could overthrow anachronistic banking practices.
Banks now have another worry.
Tech juggernauts including Amazon, Google and Facebook are encroaching into turf long dominated by banks, such as facilitating payments or offering loans to small businesses. And techies could expand into areas such as personal loans, mortgages, lending to small businesses and corporate loans. Even taking deposits, which are now beyond the reach of tech giants due to federal laws, could be offered with a top US regulator saying rules separating banks from commerce should be re-examined.
As automation has been sending shivers down spines across the financial world, here’s another reason banks should fear the likes of Amazon.com. A new survey shows consumers are eager to see technology titans take on finance. Nearly 60% of US bank customers are willing to try a financial product from tech firms they already use, according to a survey conducted by consultant Bain & Co. For younger respondents, the interest is especially high at about 73%. Well over 80% of respondents living in India and China said they’re open to trying new financial offers from tech companies’ more than double the acceptance rate in France.
For companies such as Facebook, Google, Square and Apple, handling payments is a great way to keep users in their ecosystems longer or to gain valuable insight into their shopping habits. This year, a consortium of the largest US banks fought back, debuting Zelle, a real-time payments network connecting 86mn mobile-banking customers.
Amazon is also using payments to prevent financial firms from getting a cut of some sales. It introduced Prime Reload, which gives members a 2% bonus when they use their debit card to move funds from a bank account to an Amazon balance. For card networks like Visa and Mastercard that means less income from fees and less visibility into their customers’ purchases.
Amazon and PayPal have developed ways to let customers without bank accounts shop online. Amazon already finances merchants on its website, providing them with more than $3bn since 2011. A concern among lenders is that Amazon could get involved with bigger customers.
Not so long ago, across the world, homebuyers, entrepreneurs and college students went hat-in-hand to the bank to apply for a mortgage, small-business credit line or student loan. But that no longer is the case.
Amid predictions of a “Darwinian battle” breaking out between banks and tech firms, some surprising combinations may finally emerge in the financial world. Banks still have an edge when it comes to trustworthiness, but tech giants like Amazon, well regarded by consumers, could soon undo that.
It’s not yet clear if lenders and techies would want to live together or dig in for a protracted battle for upper hand. But its clear technology is making inroads into conventional banking.
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